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Illustration: Eniola Odetunde/Axios

As the first Theranos trial begins, there have never been fewer incentives to uncover or prosecute corporate fraud.

Why it matters: There was a brief crackdown on white-collar crime at the end of last year, as Republican prosecutors negotiated deals before a new administration was sworn in. Now, however, there's no such urgency.

The big picture: Hedge funds and other short sellers normally have a financial incentive to uncover fraud at companies. Nowadays, however, shorting is extremely dangerous even when the fundamentals are on your side.

  • Private companies, of course, can't be shorted at all. Given that most startups fail anyway, VCs also have little interest in worrying about fraud at their portfolio companies. If they do find it, they often have reputational reasons to want to cover it up rather than expose it.
  • Theranos was exposed by a journalist, John Carreyrou of the WSJ, and was exceptional in many ways — not only in the size and brazenness of the fraud, but also the sobering litany of real-world victims in the form of people who received dangerously erroneous lab reports. Anything smaller or less tragic might not have set Carreyrou on his multi-year Odyssey.

Context: That fraud is rampant is all but certain, given the exuberance of the markets in general and the crypto markets in particular. "During times of irrational exuberance," says Yale Law professor Jonathan Macey, "we see upticks in the success rate that people have in prying people from their money."

The bottom line: The current wealth effect — the optimism that people feel because they are richer than they've ever been — is magnified by an unknown quantum of fraud — what the great economist J.K. Galbraith called "the bezzle." Don't hold your breath waiting for it to be uncovered.

Go deeper

"Big Lie" hits California recall election

Illustration: Aïda Amer/Axios

The "Big Lie," a falsehood peddled by Donald Trump that the 2020 election was "stolen," is now being peddled by conservative figures amid other down-ballot elections, most notably, the California recall election.

Why it matters: Now that the precedent has been set, some conservatives will likely use unfounded allegations of election fraud as a basis for undermining all potential election outcomes they don't agree with.

6 mins ago - Politics & Policy

Democrats brace for staredown over paid family medical leave

House Ways and Means Committee Chairman Richard Neal. Photo: Win McNamee/Getty Images

Senior House Democrats are braced for battle with the Senate over whether paid family medical leave — a key priority for progressives — will be included in President Biden’s final budget reconciliation bill, lawmakers and aides tell Axios.

Why it matters: Sen. Joe Manchin (D-W.Va.) has indicated he wants to cut the program to reduce the bill's price tag. “Paid family and medical leave must be in the final package,” Rep. Richard Neal (D-Mass.), chairman of the House Ways and Means Committee, told Axios on Monday.

39 mins ago - World

Poland showdown is EU's Jan. 6 moment, top official says

Didier Reynders. Photo: Thierry Monasse/Getty Images

Poland and Hungary have forced a moment of reflection on the European Union — similar to the one in the U.S. after the Jan. 6 insurrection, EU Justice Commissioner Didier Reynders told Axios.

What he's saying: "During many years, we have had in our minds that it was granted that if you are a member of the EU, of course you apply the rule of law; you have full respect for democracy, fundamental rights and so on — maybe with some concerns but with a real intention to adapt your legislation to be in full compliance [with EU law]," Reynders said.

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